Did you know that only ten years ago Amazon shares were trading under $100? After breaking the $500 price level in 2015 its share price surged higher all the way to $2,050 on September 2018. While the shares spent the next few months crashing back down to just $1,307, it now sits below the $2,000 price level with one analyst suggesting it could hit $3,000.
In this article, we explain what's happening with Amazon right now, why some are expecting significant upside in the stock and the possible trading opportunities happening right now. Let's begin!
Amazon: The $500 billion question
Analysts from the investment banking giant, Piper Jaffray, have shocked the market with an extremely bullish case for Amazon shares, suggesting they could reach the $3,000 price level by earliest mid-2021. At the very heart of their call is their formula in valuing the multi-billion company.
According to analysts at Piper Jaffray, there are two ways to calculate the value of Amazon: as a retail company or as a tech company. Retail multiples are traditionally lower than tech (or e-commerce) multiples and in the case of Amazon, the difference in the value is huge - to the tune of $500 billion.
If Piper Jaffray is correct, this means shares in Amazon are currently undervalued by around 65% from May 24th's closing price of $1,823. It will also make Warren Buffet look smart yet again as his company, Berkshire Hathaway, have been snapping up close to $1 billion worth of Amazon shares in recent months.
What does the rest of Wall Street think of Amazon?
Out of 45 surveyed brokers and investment banks on Wall Street, 40 have a buy rating on the stock and five have an 'overweight' rating. In fact, many investment banks such as RBC Capital Markets, Deutsche Bank and the Credit Suisse Group, initiated their buy ratings this year. Of course, this never means the stock price will just go up - but it does show that these big investors feel positive about the fundamentals of the company.
In fact, out of these surveyed brokers and investment banks, the average price target for the stock is $2,128, with the highest target at $2,450 and the lowest target at $1,850. While these are merely just the opinions of different analysts, the figures - along with Piper Jaffray's $3,000 call - do represent some possible upside in Amazon's share price from its current level. What does the chart tell us?
How to Trade Amazon Shares
The long-term price chart of Amazon below paints a significantly bullish picture. However, there have also been a few significant moves to the downside, signalling that traders and investors should always follow strict risk management principles.
Source: Admiral Markets MT5 Supreme Edition, AMZN, Weekly - Data range: from April 10, 2011, to May 27, 2019, accessed on May 27, 2019, at 7:57 pm BST. - Please note: Past performance is not a reliable indicator of future results.
Traders will often use support and resistance lines, such as trend lines, to help in identifying possible areas where buyers may return to the market after a dip. The long-term price of Amazon shows two possible trend support lines, that could be useful if shares fall significantly further:
Source: Admiral Markets MT5 Supreme Edition, AMZN, Daily - Data range: from May 3 2015, to May 27, 2019, accessed on May 27, 2019, at 8:04 pm BST. - Please note: Past performance is not a reliable indicator of future results.
Traders who prefer the lower timeframes, aiming to trade shorter-term moves, may look to the daily chart for possible areas of support where buyers may return to the market after a dip. The current daily chart of Amazon is offering two levels of support: a trend line and a horizontal support line both shown in black below:
Source: Admiral Markets MT5 Supreme Edition, AMZN, Daily - Data range: from July 25, 2018, to May 27, 2019, accessed on May 27, 2019, at 8:04 pm BST. - Please note: Past performance is not a reliable indicator of future results.
While support and resistance lines offer possible zonal areas where markets could turn, there is the possibility that a market may never reach a possible zonal area. However, the power of zonal areas is the fact IF the market does reach the area, the trader is ready and prepared and knows what to look for next. In most cases, it will be some form of price action based entries such as double bottom patterns or hammer candles.
While more and more analysts are starting to increase their price targets on Amazon shares, there are still significant headwinds towards reaching the $3,000 level. However, traders who are prepared with the right tools may be able to successfully navigate any move higher. How prepared are you?
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